Thinking about becoming a home owner this year? (Perhaps you want to nab the $8,000 first time home buyer tax credit.) If so, take a deep breath and prepare yourself financially and mentally for a rewarding, but challenging, experience. Whether you’ll be buying this month or next year, here are five things you really need to know about buying a home. While you’re at it, check out our mortgage information resource center where we provide more in depth information about becoming a home owner.
#1. Real Estate Agents and Mortgage Brokers Don’t Work For You
Real estate agents (even buyer’s agents) and mortgage brokers will tell you they are your best friends in the home buying process and that they’re on your side. They’re not. They don’t work for you; they work for themselves. They both get paid almost exclusively on commission. The more you pay for your house and the higher your mortgage rate, the more they take home. I’m not saying that real estate agents and mortgage brokers are going to scam you—many will work with you and help you into the right home and the right mortgage—but you do need to understand how they get paid and understand your limits. Don’t allow yourself to be pressured into a home—or a loan—outside your budget.
#2. Don’t Spend All Your Cash on a Down Payment
Having a down payment saved—hopefully 20%—is more important than ever to qualify for the best mortgages. That said, it’s unwise to spend everything you have just to get into your home. If you do spend all your cash on the down payment, you’ll have a house, but nothing left to make improvements, fix things if they break (and believe me, houses break), or even make your mortgage payments if you lose your job or face other expenses. Keep your down payment savings and your emergency fund in separate accounts, and don’t take the plunge into home ownership until you have both.
#3. Be Patient
Although credit is tight, it’s very much a buyer’s market. You have the negotiating power, so don’t be afraid to go back and forth several times with a seller to get the deal you want. And, if you don’t close on the first house you come across, there are many others available. As with any major purchase, acting quickly will only cost you money you don’t have to spend.
#4. Real Estate is Not a Foolproof Investment
Not so long ago, plenty of “gurus” were touting real estate as the only investment people should consider. Millions of Americans bought homes that cost way more than they could afford, assuming their home value would only continue to skyrocket. As we know today, that simply isn’t always the case. In fact, many experts say that real estate values could continue to plummet for several years before climbing again.
When you buy your first home—especially if you buy it this year—buy it to be your home only. Do not think of it as an investment. If it appreciates (and over 10, 20, or 30 years, it hopefully will), great. If not, it’s still your home. As a result, do not neglect saving for retirement in a 401(k) or IRA and investing on your own.
#5. Home Ownership is Not a Right, Nor a Necessity
For decades, we Americans assumed that owning our homes was as inalienable a right as Americans as our freedoms protected by the Constitution. That simply isn’t so. The ability to own a home takes hard work and long-term financial responsibility. It’s not a right and, in fact, it may not be for everybody. That’s OK. Believe it or not, there are successful Americans who rent their entire life. Don’t buy a home, this year or ever, just because you think it’s what you “should do”. Buy a home because you want to own a home.
Are you ready to buy a home? Improve your position to negotiate for the best mortgage rate: Get no obligation mortgage quotes online. Are you a new home owner? What other advice would you give to others consider buying their first home?